George Soros, who made more than £1bn betting against sterling on Black Wednesday, has long predicted a crisis in capitalism. Photograph: Kieran Doherty/Reuters

Like urban foxes, they dislike the glare of lights and avoid the human gaze. But the stealthiest, wealthiest billionaires in America’s hedge fund industry will reluctantly show their faces today to deny that they have wrecked the global economy.

At a hearing of Congress’s house oversight committee called by the pugnacious Democrat Henry Waxman, five top hedgies with a combined wealth of $29bn (£19bn) will be called to account on the activities of their secretive, high-risk, barely regulated industry.

John Paulson, George Soros, Jim Simons, Ken Griffin and Philip Falcone are the cream of a crop of financiers who, to their enemies, are the robber barons of the modern economic order.

The world’s richest man, Warren Buffett, has dubbed their fees “grotesque”. Italy’s finance minister has called for the funds to be banned, branding them a “hellish” industry of “absolutely crazy bodies”. Germany’s former deputy chancellor once compared them to swarms of locusts.

For a decade, hedge funds have seemed to be a licence to print money with returns comfortably beating the stockmarket. Some 10,000 funds globally manage more than $2tn. But for many players in the industry, the gravy train has come to an abrupt halt.

According to Chicago-based Hedge Fund Research, more than 350 hedge funds have liquidated this year. The average fund has lost 15% its value with five successive months of decline and some believe that as the shake-out accelerates, the industry could shrink by a half. So what has gone wrong?

Roger Ibbotson, a Yale University finance professor who chairs a US fund, Zebra Capital Management, says firms have been hit by a double whammy of a financing squeeze and dismal returns.

Traditionally, hedge funds have borrowed heavily on the back of their clients’ money to increase their leverage and to give them more chips to gamble. But banks, wounded by the credit crunch, have become more risk averse and with the failure of Bear Stearns and Lehman Brothers, two leading servicers to the industry have disappeared.

“Hedge funds have had to de-leverage and they’ve all had to do it at the same time,” says Ibbotson. “That has been catastrophic for a lot of firms.”

Hedge funds hurriedly exiting positions have been blamed for aggravating extreme stockmarket volatility. Meanwhile, many have been exposed as simply lacking the cunning to compete in a fast-moving, crisis-stricken economy.

John Godden, managing partner at London-based hedge funds consultancy IGS, says the industry has expanded too far and too fast, at the cost of quality.

“Barriers to entry have been too low,” he says. “People have been able to start funds with a minimum amount of capital, they’ve been able to get set up with service providers and they’ve been able to do so with a sub-par skill level.”

Among those suffering the most are “long-short” funds that buy some shares and bet on drops in others. Godden says many such funds have been found to be lacking.

“As a total strategy, equity long-short has failed miserably this year because, frankly, many of them weren’t equity long-short – they were equity long,” says Godden. “They’ve ridden the market wave over the past few years and they didn’t have the skill set to do what they’re supposed to in a downturn.”

Just this week, a $10bn Connecticut-based former high flyer, Tontine Capital, shut two of its four funds after slumps of more than 65%. A number of funds have frozen investor withdrawals, including Platinum Grove Asset Management, run by the Nobel Prize winner Myron Scholes. Even Ken Griffin’s massive Chicago-based Citadel Group is suffering, with falls of 35% in two of its key funds.

Longstanding critics of the industry claim vindication. Peter Morici, professor of business at the University of Maryland, says hedge funds originated in a lucrative niche that has simply become too crowded.

“There were some very smart guys who would find seams in the market – inconsistencies in pricing on different markets,” says Morici. “But if a lot of people do it, they end up competing against each other for very small opportunities. The concept of a hedge fund was simply not scale-able.”

To opponents, the vast growth of the hedge fund industry has contributed to a culture of risk and aggression that has infected traditionally staid banks in the Square Mile and on Wall Street, with catastrophic consequences as the credit markets unwind.

“They were, in part, responsible for creating this culture,” says Morici, who predicts that hedge funds will recede to cater for their original client base of sophisticated, wealthy investors before boom times arrived at the beginning of the decade.

But insiders beg to differ. The crisis, they believe, presents a long-term opportunity. As the likes of Goldman Sachs and Morgan Stanley retreat to become commercial banks, hedge funds will fill the “risk-taking” space on Wall Street. Hedge funds themselves, say advocates, are victims, rather than villains, in the present crisis.

“Hedge funds are the product of a world that demands higher returns,” says Adam Sussman, director of research at the US financial consultancy Tabb Group. “It’s human nature to fulfil that demand.”

At today’s hearing, congressional figures are likely to quiz hedge fund bosses about the likely impact of greater regulation. One possibility is that firms could be required to disclose information about their holdings. There could also be longer-term restrictions on short-selling shares – a phenomenon blamed by some for destabilising troubled banks.

Sussman expects the fee structure of hedge funds to take a knock as clients prove harder to come by, with earnings to becoming far more modest in years to come. But he doubts that government oversight will kill off the industry. “There will always be hedge funds – but they might not be called hedge funds. They’ll come up with a new entity that will allow them to make more money.”

Saed Bannoura – IMEMC

Senior Israeli military officials stated on Wednesday that they believe that the Gaza Strip will witness a new war in the coming two months. The officials said that this war could happen although Hamas, in control of Gaza, is not interested at all in ending the truce.

The officials stated that the Palestinians consider December 19 as the last day of truce as the six-month truce deal was achieved through indirect talks mediated by Egypt between Israel and Hamas nearly six months ago, also the term of President Mahmoud Abbas in office officially ends on January 9 of 2009.

Hamas officially stated that on January 9, Abbas will officially become an “illegitimate president”.

Israeli military sources stated that even if Hamas is not interested in a new confrontation with Israel, “there are other factions in Gaza, such as the Islamic Jihad and other group close to Al Qaida, that will be interested in a new confrontation”, according to the Israeli sources.

Based on this belief, the Israeli military officials are convinced that Israel should be prepared for any possible war with Gaza.

Meanwhile, Israeli Defense Minister, Ehud Barak, said that Hamas leaders should understand that any strike against Israel will result “in dozens of painful strikes against Gaza”.

The Israeli army already prepared a plan for a possible attack against Gaza, the plan was prepared several months ago and includes several scenarios.

One of the scenarios put forth is a full invasion to the Gaza Strip and imposing full Israeli military control over it. This plan would also be accompanied by a series of assassinations that would target military and “extreme” political leaders of Hamas. The pan would also include reimposing the Israeli military control over the “Philadelphia Route” along the Gaza Egypt borders.

Yet, Barak said that Israel is interested in the continuation of the truce and rejected demands from the Israeli right wing to reoccupy Gaza in order to free the captured Israeli soldier Gilad Shalit.

He also said that military officials will have a free hand to decide any military measures they deems essential.

Israeli political analysts said that any successful military offensive against the Gaza Strip will help Barak in the upcoming Israeli elections, as Barak and his Labor party are losing public support.

The analysts also said that the Israeli public would forget all of the “medals of courage decorating Barak’s chest” and will chose Benjamin Netanyahu.

They added that Barak wants to remind the Israelis that he “is number one among Israeli political and military leaders in the country”.

Patriots, get us out of this Zionist nest! We were warned by our wise forefathers of the danger of becoming beholden to a partner in our government. President Washington showed us the light but our government blew it out and now are paying a dear price, in blood and treasure, to keep our beloved America from being sucked down the proverbial Zionist drain of no return.

America is not at a crossroad. We are way beyond that and have been for 41+ years. The Six Day War in June of 1967 was the path to our prosperity and the joy of real freedom but our bought and paid for government, from LBJ to the congress and courts took the road of a snake’s forked tongue and the snake has all but devoured all that this great land is endeared for, such as our dignity, fairness, love of family, friends, love of country and our planet, and, most of all, God. We have given until we can’t give anymore. The greedy Jewish Zionist bankers have bankrupt this country from Wall Street to your street, to your house, to your farm, your land, your car, your boat, and your life.

We cannot and must not fight anymore wars for Israel. If they want to fight Iraq, Afghanistan, Iran, or anywhere else, let them fight their own fights. Let them pay with their own lives, their own treasures, not with America’s sons and daughters, not one more day! Enough is enough! Israel, you are on your own. No more aid for you, period! No more aid for any other country. America, we must cut the head off of the snake that is devouring us or we Will never see this country the same ever again. It’s up to you, patriots, to raise your voices and your pen and demand freedom from the Israeli leaches before America’s blood is sucked dry.

If Israel would have been slapped down and punished, fiercely, for the murders of American sons on the high seas on June 8, 1967 aboard the USS LIBERTY, this country would not be in the shape it is in today. The saddest part of all is this country is under the Zionists’ thumb now more than ever before in history. Wake up, American patriots!! You are the only ones that can save us. Put country before self for the sake of our children and their children, for God’s sake!!

Patriots, I beg you as a combat wounded patriot. I have seen the Zionist sword slay my fellow Americans like cattle. We can’t allow anymore of our blood and treasure to be stolen by the Zionist State of Israel with the rubber stamped approval of this corrupt Zionist run government called the good ole USA.

The elections we all just went through changes nothing. Our new president chose as his chief of staff Roam Israel Emanuel, an Israeli IDF officer, an Israeli firster, no doubt. God save our nation!

Like this:

“Another criticism leveled at business reporters is that they are too close to Wall Street and the City of London, and have too much respect for the institutions they are supposed to be examining…“businessmen are seen as heroes” and it’s all part of the “cult of masters of the universe;” he cites the endless sycophantic articles about Bill Gates of Microsoft and Richard Branson of Virgin. He argues that there is a kind of “cultural embedding – as financial journalists cover business, they become part of the scene, they identify with the players, go to the parties, they are increasingly in a world of fewer and fewer people that is cut off from the mainstream of American life.” He believes that many financial journalists want to be like these “Masters of the Universe” that they write about every day.”

The media stands accused of failing to foresee the global financial crisis, of a lack of understanding of the issues, and even of having a hand in the problems we now face. The Editors Weblog discussed the issue with Danny Schechter, a respected investigative journalist and the author of “Plunder,” a searing indictment of the modern banking system, the role of government in finance, and the greed-is-good mentality.

Schechter believes that there were two key areas where the media failed. He says that there was little or no examination into the new breed of exotic financial products that caused many of the problems, such as CDOs, and that the media ignored the warnings from community housing organizations of the predatory lending practices in some of America’s poorest communities. “This was a big media failure, we were not warned about it” says Schechter. If Schechter’s assertion is correct, why did the media fail to fulfil its role? Newspapers, and the media in general, are supposed to be the fourth estate, a watchdog for citizens. Is it a lack of knowledge on the workings of high finance or has the media lost its way and become part of the problem?

Schechter believes that the media failed in its role because of vested interests. He points out that one of the key sources of revenue for newspapers is real estate advertising in weekend supplements and classifieds, as well as advertisements for credit card and refinancing companies. As a result, he argues there is a connection between the real estate and newspaper industry; their future and success are intertwined. Schechter says, “The newspaper industry is the marketing arm of the real estate industry. In some cities you actually had newspapers getting a piece of the action of sales through the ads that they generated. So they were actually part of the corruption of this whole relationship. So of course there was little real scrutiny about what was actually happening in the neighborhoods where houses were flipping, where people who couldn’t afford to buy houses were buying them with bogus mortgages. Newspapers were making money on the sales of these homes.”

Schechter argues that after the dot.com bubble burst back in 2000, all the advertisements from these new emerging businesses stopped, so the $3 billion in lost advertising revenue for the media industry had to be found somewhere. Schechter puts forth that credit card companies and refinancing firms stepped into the gap. He points out that the majority of people do not automatically spend money that they don’t have, but it was marketed to them through the media in advertising and life-style supplements. Most of the money that the media makes in advertising is in the last quarter in the run up to Christmas, newspapers run articles on the best presents to buy, and so forth, all of it driving a concept of “buy and shop” which “stimulates consumption.” Schechter says, “for me, on the consumer front newspapers are a marketing instrument and on the investment front it’s a confidence building instrument. The media was part of this whole sales machine, and it happened at the same time that newspapers were cutting back on investigative reporting, and ironically expanding business news targeted at the business world; not at the general public, not on the economy and how it affects you and me.”

Another criticism leveled at business reporters is that they are too close to Wall Street and the City of London, and have too much respect for the institutions they are supposed to be examining. John Friedman of MarketWatch was at the press conference announcing Bank of America’s acquisition of Merrill Lynch and wrote, “the media were so polite and deferential to the two CEOs; they behaved as if the press conference were a victory lap for the financial services industry.” Schechter believes that “businessmen are seen as heroes” and it’s all part of the “cult of masters of the universe;” he cites the endless sycophantic articles about Bill Gates of Microsoft and Richard Branson of Virgin. He argues that there is a kind of “cultural embedding – as financial journalists cover business, they become part of the scene, they identify with the players, go to the parties, they are increasingly in a world of fewer and fewer people that is cut off from the mainstream of American life.” He believes that many financial journalists want to be like these “Masters of the Universe” that they write about every day.

Schechter also says that there is no real pressure at the top of media organizations to thoroughly investigate these companies. Thee reason being that they would be investigating their advertisers. As a result, there is no impetus behind financial reporting, no push for the truth and the heart of the story, not enough cynicism.

Furthermore, with the advent of multi-platform publishing and shrinking newsrooms, a journalist is frequently a “fireman, going from one fire to the next. When you are doing that, there is very little time for reflective analytical reporting.”

During an interview recently on the Editors Weblog, Financial Times managing editor Daniel Bogler said, “It’s unfortunate that the financial literacy and understanding of how things work in the City and of basic accounting and so on, is actually very thin in financial journalism.” Schechter agrees, saying, “You have people who are not really very well educated covering these issues. Hence they go to a briefing and a company gives them a story, and they don’t really have a counter-narrative.”

Schechter’s assessment is not unilateral. He points out that many newspapers and bloggers are asking the right questions and searching for the truth in this financial crisis. He cites the UK’s Telegraph and Guardian newspapers, saying they “have been way ahead.”

Looking back, Schechter sees “a financial system failure, a regulatory failure and a media failure. Everyone is willing to talk about the first two, but they are not willing to discuss the last one. We are all in this. It’s a media failure of omission and commission.”

By Joint Communique

Tell me we haven’t been bamboozled. We need the change you promise, but something just doesn’t seem right. After eight years under a Bush administration that engendered misery at home and around the world, the United States had found itself distrusted, scorned and despised. And so it seems—correct me if I’m wrong here, please—the US did what the US does best: sell.

Public relations. Imagine with me, if you will, a room of men, probably old white men, with a problem. How do we, they ask themselves, hold onto our place as the world superpower, yet at the same time get rid of the all the bad PR, those annoying threats and censures? How do we, they ask themselves, appease the voices that dare to suggest we’ve gone too far? Without, of course, conceding anything. Epiphany! Change our image, not our style. Ah, the art of American business. Substance is irrelevant, just package it and sell it. They grabbed onto the marketing ploy that has sold many a dubious product: “New and improved.”

Change? Those old white men found the packaging solution. How about the biggest change in American history, colour in the white house? Appearance is all that matters. It would have pushed their luck to choose an African American whose ancestors had struggled to rise from having been degraded as slaves. Such a man may have been too empathetic to the oppressed of the world. No, your past and your appearance was enough; their front man need only carry the pretence of change.

Mr Obama, look in the mirror. You don’t look like them, those old white men. Marketing ploy extraordinaire: product aside, a different image is new and exciting. “Change,” you advised the world, to an America “where all things are possible.” And we the consumers dared to hope. Maybe he really is, we dreamed, new and improved.

The marketers knew the American voters were hungry for talk. Just look at the phenomenal success of YouTube, internet blogging, endless streams of reader-comments, editorial columns, talk shows of every variety. Voters were frustrated—fighting for oil, fighting to make a living—and frustration is vented in talk. With your charming smile you promised dialogue, diplomacy without preconditions; you said “we are nice, you see, we like to talk too.”

While the magicians distracted us with your youthful dark appearance, however, while we focused on our newfound open-mindedness, you selected Joe Biden as your vice-presidential candidate. Were you off your game? Or just hoping we wouldn’t dare burst our bubble of self-righteousness by pointing out that this old white man gleefully announced he was a Zionist?

US domestic welfare has been irrevocably intertwined with its foreign policy in the Middle East. And the Middle East is hurting. Now you are an intelligent man, Mr Obama. Did you not think that bringing an unabashed Zionist with you to the White House might tend to dump salt into the wound? Your statement on foreign policy is clearly dominated by Middle Eastern issues. You promise change. You promise dialogue and diplomacy without preconditions to resolve these issues. Yet a truly significant portion of your statement is spent on swearing in the most absolute terms your unmitigated, incontrovertible and permanent allegiance to Israeli interests. And then Biden. Talk about preconditions.

In fact, your preconditions are so prevalent that the concept of dialogue is ludicrous. You state that “Not talking doesn’t make us look tough – it makes us look arrogant, it denies us opportunities to make progress.” How true. Just what the consumer needed to soothe his conscience. We are not bullies, you assured us, as you offered “direct diplomacy without preconditions to end the threat from Iran.” But wait a minute, Mr Obama, does that statement not presume that there is a threat from Iran? Once upon a time US intelligence documented that there was no threat, a point which has been obfuscated by a smoke cloud of politically-motivated accusation.

Perhaps it is time to hire a new team of writers, Mr Obama, because they failed to notice the contradiction between the phrase “direct diplomacy without preconditions” and the undeniable precondition which immediately follows that phrase in flashing lights: “Obama and Biden will present the Iranian regime with a clear choice. If Iran abandons its nuclear program and support for terrorism, they would offer incentives like membership in the World Trade Organization. If Iran continues its troubling behaviour, Obama and Biden will step up our economic pressure and political isolation.” Do what we say or else. And we won’t just threaten through the media, we will tell you to your face. Some dialogue.

It troubles me that you view the July 2006 War (which left 43 Israeli civilians dead and at least 1200 Lebanese civilians dead) as an Israeli exercise in self-defence. It troubles me that you categorically deny Lebanon the same right to self-defence. Is “self-defence” an objective concept or is it a US/Israeli prerogative? It troubles me that you vocally champion “adherence to the rule of law” on the one hand, and then look the other way as Israel violates humanitarian and international laws time and again.

Am I being an idealist in mentioning such grandiose notions as humanitarian and international law? I think not. You speak often of ideals. You even acknowledge their violation parenthetically in your “Plan to Actively Engage China.” You note that China has “failed to live up to international standards of human rights,” (a phrase many would say is a gross euphemism at best) and then you kindly chastise China: “the United States has to be frank with the Chinese about such failings and will press them to respect human rights.” You graciously offer not to “demonize China” because you “understand both the magnitude of the challenges facing a developing China and the importance of a constructive relationship to foster continued peace and prosperity.”

Compare this if you will, to the bold assertions in your “Israel Fact Sheet” (not a speech, a statement or a plan here, but an incontestable fact sheet). Well, you know what it says, don’t you, Mr Obama. Israel is always right. Lebanon, Palestine and any other country that dares support Arabs’ being of equal worth to Jews, they are always inherently wrong. You do not hesitate to demonise the Arabs/Iranians as violent extremists and terrorists. “Those who threaten Israel threaten us,” you say. Does that not recall your predecessor’s warning that “you’re either with us or against us”?

This brand of so-called diplomacy is neither new nor improved. Any vague sense of hope for change we may have still clung to—those of us who value open-minded dialogue that demands listening as well as speaking—well, that hope that you so carefully crafted during the campaign was resolutely squashed after the election when you nominated as your Chief of Staff Rahm Emanuel. Would you expect anyone to believe that he is not the epitome of bias, a veritable Mr Preconditions?

Bamboozled indeed. It seems to me that this little game of con the consumer has seduced those who are hungry for power. For it is this dogged insistence on double standards that has these past eight years fed the distrust and scorn and despising of the US. And it is the chauvinism of adhering not to the rule of law, but to the rule of men. And it is the hypocrisy of professing to defend democracy by killing the spirit if not the body of anyone who dares to voice a different opinion.

Mr Obama, it has been a mere week since you were elected, and already you have destroyed any semblance of hope held for peace in the Middle East. Over sixty years of US subservience to the Zionist dream has not brought peace to anyone, not even to the Israelis. It certainly is time for a change. You can continue to seek profit from the illusion of power, or you can seek pride from the reality of respect. It is indeed time, as you say, to promote the cause of peace. But as you cautioned us to reaffirm the fundamental truth of perpetual hope, you failed to mention the need to reaffirm the ultimate fundamental truth: that all the world’s people are simply that, just people, none better than any other. If you are serious about dialogue, then everyone deserves the same seat at the table. Then we can talk.